Opportunity Costs

Essay

Opportunity Costs. Three graduate business students are considering operating a tofu burger stand in the Dalles, Oregon, windsurfing resort area during their summer break. This is an alternative to summer employment with a local fruit cannery where they would earn $7,500 each over the three-month summer period. A fully equipped facility can be leased at a cost of $8,000 for the summer. Additional projected costs are $2,000 for insurance, and 25¢ per unit for materials and supplies. Their tofu burgers would be priced at $1.50 per unit.
A. What is the accounting cost function for this business?
B. What is the economic cost function for this business?
C. What is the economic breakeven number of units for this operation? (Assume a $1.50 price and ignore interest costs associated with the timing of the lease payments.)